Disappeared News

by Larry Geller

Declaring bankruptcy is one way out for the Superferry. While their statement blamed  the Hawaii Supreme Court ruling shutting down operations as the cause, if, in fact, they were running at a loss, bankruptcy was always a strong possibility and no surprise (except to those who depended on the daily papers for their Superferry news). By seeking relief from creditors, HSF leaves the suckers behind and could live to sail another day.

The warnings were there if one read the blogs. There should be additional information coming out beyond this initial news report. Let’s see how the papers do, now that Hawaii Superferry is no longer one of their big advertisers.

The case is In re HSF Holding Inc., No. 09-11901, U.S. Bankruptcy Court, District of Delaware (Wilmington) and may provide more details as it unfolds.

For now, here is the Bankruptcy Petiton filed yesterday, including a list of creditors and amounts owed, a motion to order payment of pre-petition wages which identifies current employees, and a motion related to the previous one.

The Advertiser article today sought comments from one of the two Republican state senators left standing, Sen. Sam Slom, and then Senate Majority Leader Gary Hooser.

From Sen. Slom:

State Sen. Sam Slom, R-8th (Kahala, Hawai'i Kai), called the Superferry bankruptcy a "tremendous tragedy for Hawai'i."

Slom said he believes opponents of the project were in the minority and that the Supreme Court's decisions were wrong. He said the ferry had the potential to unite the Islands economically and to create more business opportunities on the Neighbor Islands.

Slom seems to believe that a business that lost money continually “had the potential to unite the Islands.” Unless a business can turn around and make money, Sam, it has no potential at all. Even if the Court let them go on, how does a business run on negative income? Can’t blame this one on opponents, Sam, the opponents were right.

Analysis of Superferry operations has long pointed out what Slom can’t see. Here is a recent analysis by Brad Parsons. Brad considers also the advantages that the Superferry had in (for example), fast transport of vehicles, but here is a snippet related to break-even fares, ca. 2008:

Late last year HSF disclosed their operating costs were $650,000 per week, with the increase in marine diesel oil (MDO) fuel cost to over $1000 per metric ton or over $3.75/gal* for MDO at the retail level, their weekly costs since last fall have increased at least an additional $105,000 per week due to fuel alone. That means the 1/4 ridership/vehicle capacity they needed before just to cover fuel costs has increased now to about 1/3 capacity just to cover fuel costs. HSF has been running recently at loads of 1/4 to 1/3 capacity for the early runs and a 1/4 or less for the evening runs. A little more than their second and third quarters of ridership are needed to cover the rest of their expenses, leaving less than the top quarter of full capacity to net income, at current prices. If HSF doubled their current prices per person from $39 to $80 and per vehicle from $55 to $110, their ridership breakeven levels would be half what they are now, but demand would likely drop off for their services.

Sen. Hooser hopes to look forward. That should include determining what type of interisland transportation is most suited to Hawaii’s needs. It will likely be a smaller vessel. Even with reduced fares (leading inevitably to bankruptcy), the Superferry could not fill its seats to capacity. Had it charged what it needed to cover fuel and other expenses, it would have had fewer passengers still.

Was bankruptcy the only route? Well, it’s happened, but now that it has, it would be hard to imagine a responsible investor purchasing a business with no prospects of turning a profit. Unlike Sen. Slom, anyone evaluating the prospects of running the business at a loss would responsibly back away from it. That doesn’t leave many options. HSF could have tried for a comeback with a smaller vessel and after completion of the EIS that the law requires. Who knows, if they emerge from Chapter 11, that’s still a possibility (if, perhaps, a small one).

No, the saga isn’t over. Bankruptcy will cost the creditors (including the State of Hawaii), but the ferry company could emerge with its ships still afloat. Imagine that. They could move on to eventual profitability while we get stuck with the bill.

Hawaii holds a third mortgage on the Alakai. I’ve been told that a third mortgage is not worth the paper it is printed on, but why, then, go to the trouble of doing it?

The state has to answer now what it can do with that piece of paper, instead of sticking other harbor users with the $40 million or so in improvement costs and sticking the taxpayers with other bills. The Lingle administration owes taxpayers for its aggressive promotion of this private business and should be at least as aggressive in the bankruptcy proceedings to recover whatever is possible.

Permalink posted by Larry @ 5/31/2009 07:36:00 AM